TRANSCRIPT:

Hi Greg Vojtanek here of Fade In Financial. Today I want to talk to you about three biases that we have as investors.

The first one being anchoring. Now anchoring is the tendency, as investors, to become attached to a specific price as the fair value of an investment. As an example, we buy something for $100. It goes down to $85. We believe it has to go back up to $100 because we are anchored in the belief that its true value is $100. When, in reality, it doesn’t have to do anything. But because of our bias being that price being anchored at 100, that’s what we believe.

The second one is confirmation bias, which is a tendency for us to do some research and confirming what we believe is a good investment and disregarding anything that says the opposite or does not confirm our bias.

And lastly is an attachment bias, which is emotional. For example, perhaps your grandfather left you shares of a stock. And you just can’t bring yourself to sell it because you’re too emotionally attached to it. A real life example that I have is a gentleman that I knew had accumulated thousands of shares of a very popular company over 30-40 years of his life. It was now worth millions of dollars. When he retired, he couldn’t figure out how to purchase a condo without taking out a bank loan, even though he had millions of dollars of shares in this company. Because he was so attached to it emotionally, he just couldn’t bring himself to sell it.

So those are some biases that I see a lot of investors have. It’s certainly not all of them. But I do hope you found this helpful. Thank you.